Steve Perlman, the founder of OnLive, a games on demand service that is in beta, stated that publishers make $27 on a $60 physical copy of a video game in a speech given at DICE in Las Vegas.

That’s approximately 45% of your $60 for the game. Another 25% ($15) goes to the retailers to pay their employees, space, electric and profits. We all know that some games don’t sell extremely well and generally there are always copies left over, some discs are bad, etc. Returns count for another 11.7% ($7) and, if it’s a console game, another ($7) goes to the console maker whether it be Microsoft, Nintendo or Sony. Finally, the cost of creating the physical copy (disc, packaging, manual) runs about $4 or about 6.7% as well.

So what does that mean? Well Call of Duty: Modern Warfare 2 has topped $1 Billion in sales. That means that over $270 million has gone to Activision Blizzard. According to reports, the game cost about $200 million to make. So that gives them about a 35% profit margin, not too shabby. The L.A. Times reported that the production costs were $40-50 million and that the rest was marketing, packaging, etc.

Now look at a game like Darksiders, which might have cost THQ perhaps $30-50 million to make and $50 million to market (though it’s possible that marketing was much higher) and still possibly failed to sell even a million units. That would be $27 million in return for a game that possibly cost $100-150 million (no hard numbers have been reported) to make, market and distribute. A heavy debt to make up for THQ.

Even if you switch over to digital distribution, according to Theodore Bergquist, the CEO of GamersGate, they [the developer] might still only get 60-70% of the money you spend on a game. But, they have lower costs as there are no packaging or distribution costs, no returns and no platform royalty.

So while we might complain about the price of games, there is some justification for them. When a company makes a game like Darksiders that fails to sell (sorry THQ, I enjoyed it), another game can come by and eat some of the debt. So basically most of the time publishers are taking a chance and rolling the dice hoping for success. When it doesn’t come they can take a big hit to their bottom line. But in the end they’re hoping they hit more than they miss and manage to turn a profit.

I’m no fan of the $60 price tag, but I am a fan of video games in general and I want companies to continue making better games so it’s a price that we, as gamers, have to pay at present. It also makes me hope that this generation of consoles continues on for a few good years because we all know that when the next generation comes, there will probably be another price hike and that games will probably cost $75 or more.